Personal Companies Initiation
Those who wish to engage in commercial practice for the first time or alongside with their main activity, pursuing a common objective with at least one partner, have the option of establishing some form of company. The advantages of establishing a company are the following: a) a new legal entity is formed, with its own property and b) a contractual relationship is created between the partners.
Which type of firm should be selected though? When the company to be established is going to have a small amount of capital and the personal work of the partners is important, the most suitable type most of the time will be that of the personal company.
Personal companies are firms where the accumulation of capital is not so important and it is also not enough on its own, given the fact that the continuous personal collaboration and work of the partners is necessary. The partners of personal companies are obliged to interact in good faith with each other and are bound by the principle of equality, which means that all partners have the same rights (e.g. voting right, management and representation powers, rights on the company’s profits) and obligations (e.g. capital contribution, management related obligations), with the height of their contribution being irrelevant. What is more, if any of the partners dies, defaults or is placed under judicial prohibition, the company is dissolved, except if the statute states otherwise. For the transfer of shares and the entering and leaving of a partner, all partners must be in agreement, except if, again, something different is stated in the statute.
In personal companies the capital is divided into shares. The number of shares each partner holds is in accordance to the percentage of his capital contribution which is also the percentage of his participation rate in the company’s profits and losses.
The personal companies are divided into collective and limited partnership ones.
The differences between the two are the following:
In collective companies all the partners are collective partners. In limited partnership companies it is necessary at least one or more of the partners to be collective and at least one or more limited partners.
Collective partners are liable for the company’s debts with their personal property. That means that if someone has a claim against the company, they can be satisfied not only by the company’s but also by the collective partner’s assets. On the other hand, the limited partner is liable only up to the height of his contribution in the company’s capital and the company’s lenders cannot be satisfied by his personal property. In other words, his role resembles more that of the sponsor.
When someone becomes a collective partner in a personal company, he acquires commercial status and for this reason a check of incompatibility of other offices the person may hold with that of the status of a partner is required before he is allowed into the company. A limited partner does not always have commercial status, with all the relevant consequences relating to the practice of other activities and his insurance coverage.
It is important that the limited partner cannot engage in representation actions and for this reason in a limited partnership only the collective partner can hold managerial position. In case the limited partner proceeds to managerial or representative actions, he will be held liable with his own property for the cover of the company’s debts.Finally, the name of a collective company is comprised mandatorily of the surname of at least one partner followed by the surnames of the remaining partners or certain abbreviations (and Co., bros, and sons etc). In limited companies it is compulsory that the name of a partner is included in the company’s name.
For the taxation of personal companies partners the extent of their contribution in the company’s capital and their rights on the profits are taken into account, and because of that every case must be examined separately.
In general, it is important the selection of the company type to be based upon the personal contribution of every partner, as well as the percentage of their contribution to the capital and the percentage of their participation in the profits and losses of the company. At the time of initiation of the company it is imperative that great attention is given to the company’s statutory provisions and that every part is represented by his own lawyer.
Publication date: 26/10/2016
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